America's seventh largest airline, US Airways, has made an unwelcome $8bn (£4.2bn) bid to merge with its larger rival Delta Airlines in a move that prompted a flurry of excitement in the industry about consolidation to trim the number of cash-strapped carriers.

The proposed deal would create a new leader on routes across the Atlantic. Both airlines already serve Gatwick airport, plus other destinations in the UK and continental Europe.

But it was instantly slapped down by Delta, which insisted that it wanted to persevere as an independent carrier even though it is operating under bankruptcy protection from its creditors.

US Airways said the deal would create annual cost savings of $1.65bn and could allow for a 10% reduction in flights by eliminating overlapping services.

Doug Parker, chairman of US Airways, said: "The combined company will be a more effective and profitable competitor in the current fragmented marketplace, with the ability to better meet the continuing evolution of the airline industry."

Since the terrorist attacks of September 11 2001, US airlines have been mired in the red - the US Air Transport Association says the industry lost $5.6bn last year and $7.6bn the year before. Many analysts argue that there are simply too many players competing for passengers.

Several of the biggest airlines have dipped in and out of bankruptcy. US Airways has entered Chapter 11 protection twice but survived through a merger with America West.

"We've got too many airlines and too many hubs," said Ray Neidl, an analyst at Calyon Securities in New York. "They're going to have to consolidate over the next couple of years. If that doesn't happen, in the next downturn we're going to have liquidations."

US Airways' shares rose 13% and Delta jumped 11% in early trading yesterday. Other airlines rose on hopes of further deals - United Airlines increased by 7.5%.

There was speculation that Delta could face pressure from creditors to accept a deal. But Delta's chief executive Gerald Grinstein issued only a brief statement saying: "Delta's plan has always been to emerge from bankruptcy in early 2007 as a strong, stand-alone carrier."